House approves bill nixing 3 percent withholding on government contractors

| 10/28/2011

A bill that seeks to kill a controversial plan that mandates all government contractors – including truckers hauling government-funded loads – have 3 percent withheld is one step closer to becoming law.

The U.S. House of Representatives voted 405-16 to pass HR674 on Thursday, Oct. 27. The bill, introduced by Rep. Wally Herger, R-CA, seeks to repeal the 3 percent “pre-emptive tax.”

Back in 2005 when Congress was working to extend tax cuts, commonly referred to as the “Bush tax cuts,” they passed the Tax Increase Prevention and Reconciliation Act or TIPRA, which was signed into law by President George W. Bush.

To offset the cost of the tax cuts and credits in the bill, Congress included several provisions that were intended to address tax collection loopholes. One of those was the 3 percent withholding requirement, included in Section 511. The general idea behind the provision was that the government is not able to effectively collect all taxes they are due from entities that contract with government agencies so the 3 percent withholding will preemptively collect those taxes.

Section 511 of TIPRA was originally set to go into place Jan. 1, 2011, but Congress added a provision to the big stimulus bill (American Recovery and Rehabilitation Act) that changed the implementation date to Jan. 1, 2012 and allowed the IRS to delay further. The IRS later pushed back the implementation date to Jan. 1, 2013.

The withholding would be required of anyone who contracts with a government entity – including larger local governments. That means truckers who haul for any government agency, ranging from Department of Defense to state highway departments to local school systems, risk having 3 percent of their income for the load withheld.

The Owner-Operator Independent Drivers Association opposes the withholding and is part of the Government Withholding Relief Coalition lobbying against the effort.

The bill now awaits consideration by the Senate.